Grey market is in IPO is the unofficial or proxy market where new issues of shares are bought and sold even before they become officially available for trading on the exchange.
Assume there is an IPO of a big firm “X” which is going to open in 10 days for subscription. The grey market for an IPO is basically people betting on how much above the issue price will the stock trade on the day of listing on the exchange.
So assume 10 days before the IPO traders fix a premium of Rs 5000/lk (this is again a price discovery, and the number is arrived based on demand and supply). You can either buy this at Rs 5000/lk if you think the premium will be more or sell it if you think premium will be less.
Once the IPO opens for subscription, assume there is an oversubscription of 30 times (which means there is crazy demand), the premium can now go to Rs 15000/lk, if you had bought it at Rs 5000 earlier, you will make a profit of Rs 10,000/lk, similarly if you had sold it at Rs 5000/lk, you will end up losing Rs 10,000/lk.
All of this action happens until the day the stocks list on the exchange, after which everything is settled. You can also get into an agreement where you can take delivery of the stock if you intend to on the day of listing.
Other than the fact that there is counter party, and settlement risk, it is also illegal to take part in the grey market. Best to stay white and trade on the exchanges 